How to manage cash flow during a cost of living crisis

Benjamin Salisbury makes the case for micro-managing your business income and outgoings to get you through difficult economic times.

Our experts

We are a team of writers, experimenters and researchers providing you with the best advice with zero bias or partiality.
Written and reviewed by:

Controlling costs and effective cash management are vital functions for startups to execute plans and build a strong business that has a firm eye on its cash flow forecast at all times. 

This is crucial during a cost of living crisis when new ventures require careful nurturing but face threats from rising interest rates, high inflation, record energy costs and customers with limited spending power. Global small business platform Xero in its 2022 report, ‘Xero Small Business Insights’ found cashflow challenges are undermining the growth and operations of at least 9 in 10 small businesses in the UK. 

Most startups fail because of cash flow problems, not a lack of profitability. Cash management doesn’t mean businesses shouldn’t spend or invest. It means they must plan, prioritise and be financially disciplined. Read on to find out how to plan a cash flow forecast, how to operate it by managing the purchase and sales ledger effectively and how this delivers a cash management process that allows your business to flourish,

Cash flow fundamentals

Essentially, cash flow involves managing income and outgoings to cover financial obligations as they become due. This is managed through the sales and purchase ledgers, which can be aided by using accounting software. Careful control of these functions helps achieve effective cash flow management.

Biannually, businesses should prepare a budget outlining regular monthly expenditure and irregular costs, for instance buying new equipment. Compare this against a sales forecast covering the same period. Then build a daily, weekly, and monthly cash flow of all income and outgoings to plan ahead.

Cash flow forecasts

A cash flow forecast is a list of outgoings and income. The crucial element is the timing of both and knowing when and how to plug any gaps. Startups need to manage and balance both to pay liabilities on time and know when spare funds are available to invest in the business.

There are free templates available and you don’t need accounting skills to produce a basic plan, just detailed knowledge of your business and its future plans.

Start with regular outgoings like payroll, rent, utility bills and tax payments. Prioritise these or your staff won’t be happy and tax authorities aren’t flexible about when they are paid.

The other side of cash flow is income. When it arrives depends on whether sales are paid immediately or if you offer credit to customers. The aim overall is to receive income a bit quicker than you pay outgoings. That creates a healthy cash flow.

One practical strategy is to assume a certain proportion of credit term payments will be late. Build that contingency into the cash flow so late payments have less impact. 

More on this: head to our comprehensive guide on how to create a cash flow forecast for more information and tips.

Budgeting for growth

All startups plan to grow and as they do cash flow management can become more challenging, even as revenue increases.

As sales orders become bigger, overheads increase as you invest in staff, materials and other equipment to complete an order. Costs relating to work in progress (WIP) must be met, usually, before income is received. This increases pressure on cash flow, particularly during a cost  of living crisis.

Resorting to a loan, overdraft or invoice financing to fund growth can cost more than funding through organic cash flow. 


Try and negotiate payment terms that are as long as possible. This is challenging for startups when negotiating with larger suppliers, but as you prove reliable, they may extend payment terms. Negotiate competitive prices. Consider bulk buying or wholesaling to negotiate discounts. Our guide to how to buy from wholesalers can help.

Some suppliers may offer discounts for immediate payment but balance the benefits against the impact on cash flow. Bringing a payment forward may be impossible if income doesn’t match timing-wise.

Payments to key stakeholders – such as suppliers – must be prioritised. Plan for two payment runs per month. You will likely have limited funds for each. Carefully select which payments you must make and which can be delayed to the next payment run.

Try and avoid making ad-hoc payments, as this makes cash flow planning and management more difficult.


Get the sale and everything else will follow is a golden rule, but for successful cash management so is accurate invoicing. 

Don’t give customers a reason not to pay. A wrong figure, purchase order number or even date can give a customer an opportunity to delay payment, negatively impacting your cash flow. Like you, they will be under pressure, looking for reasons to delay a payment to manage their own cash flow.

As well as accuracy, timing is important. Once an order is complete, send out an accurate, detailed invoice quickly. When payments are received, allocate the payment against the sale so you know what payments are still due.

Automating the process through e-invoicing or using accounting software makes it easier for customers to pay and can eliminate obstacles that delay payment.

Collecting payments

Credit control is the collection of outstanding payments. Managing the credit control function effectively helps a business take control of their cashflow by applying the right techniques to get paid quicker.

Late payments mean startups pay their own suppliers late and can cut off the supply of funds for startups to grow organically. They can cause startups to cease trading. According to recent research for accounting body ICAEW, around half of invoices issued by small businesses in 2022 were paid late.

Beige Retro Birthday Calendar (Presentation (43))

Many businesses operate by payment in advance or at point of sale but if you offer credit terms to customers, run a proactive credit control function. Email reminders are easily ignored, a conversation is more likely to get results.

For new customers, only offer payment terms after conducting a credit check. If there are concerns, don’t offer credit. If you do and they pay late, consider withdrawing credit and reverting to payment in advance. There are many low-cost credit reference sources, for instance Dunn & Bradstreet.

Six tips to reduce late payments

1. Conduct a full credit check on new customers to enable you to make sensible decisions on credit terms.

2. Set out clear terms and conditions in your sales contract that helps clarify how your payment terms operate. 

3. Set a credit limit that is right for your business, not necessarily the maximum it suggests on a credit report. The credit limit can start low and rise once the customer has proved to be reliable.

4. Outsource or employ the right staff, even part-time, if you are a low turnover startup or SME.

5. Preempt problems – Check invoices are sent to the right person to be approved for payment before they become due. When chasing payments, run your operation tightly, like clockwork. 

6. Consider stopping credit – Keep a record of late payers and chase diligently and watch out for part-payments as this could indicate they’re having financial difficulties.

When to spend and what on?

Investing in your business is still important, even during a downturn. What you spend depends on your specific circumstances and business strategy. The key is to understand what works, prioritise and get value for money.

There will be times when you need to conserve cash, but also periods when investing in the business is vital. 

Digital and social media marketing  can be even more important during a cost of living crisis. Use analytics to understand what works, prioritise those channels, and avoid ineffective sources.

Hopefully, you will need to increase headcount. Recruitment can be expensive, especially if you hire the wrong person and the impact is magnified for a startup. New recruitment technology products can help with sourcing, screening and interviewing candidates.

Technology can create efficiencies and there are many new tools and products to help your startup do more,

Read more:

Key takeaways

Effective cash management can help your startup succeed. There are strategies to achieve this. 

  • Create an accurate cashflow forecast that can be updated regularly
  • Understand how to operate an effective purchasing and sales process 
  • Back this up with a coordinated credit control function
  • Prioritise what to spend in a cost-of-living crisis 
  • Focus on keeping key suppliers happy 
  • Invest in areas that help complete larger orders to achieve growth

Cashflow fundamentals – prepare a budget outlining regular monthly expenditure and irregular costs against a sales forecast of anticipated income over the same period.

Cashflow forecast – A list of outgoings and income. The crucial element is the timing of both and knowing when and how to plug any gaps.

Purchasing – Negotiate extended payment terms and discounted prices. Pay key overheads on time.

Sales – Ensure sales invoices are accurate and sent out once an order is complete.

Collecting payments – Credit control is key. Identify issues that may delay payment and speak directly to relevant people to resolve them.

When and what to spend – Prioritise key spending in a cost of living crisis to help your startup grow.

Benjamin Salisbury image
Benjamin Salisbury - business journalist

Benjamin Salisbury is an experienced writer, editor and journalist who has worked for national newspapers, leading consumer websites like This Is Money and, business analysts including Environment Analyst, AIM Group and written articles for professional bodies and financial companies. He covers news, personal finance, business, startups and property.

Written by:

Leave a comment

Leave a reply

We value your comments but kindly requests all posts are on topic, constructive and respectful. Please review our commenting policy.

Back to Top